The authors acknowledge the financial support of the 21st Century
Initiative's sponsors. We also express gratitude to the many executives
from sponsor firms and other companies, as well as scholars and
experts from a variety of institutions, who have commented on
earlier versions of the MIT scenarios:

We are also grateful to Charlie Fine, Bill Hanson, Bengt Holmstrom,
Tom Kochan, Wanda Orlikowski and Jack Rockart of the Sloan faculty,
David Tennenhouse of the MIT Laboratory for Computer Science,
and Sloan doctoral students Andreas Gast and Albert Wenger, who
generously commented on early drafts of this paper.

Special thanks go to Bob Halperin, now head of the Sloan School's
Executive Education program, who helped launch the scenario project
and see it through its first two years.

Two Scenarios for 21st Century Organizations:

Shifting Networks of Small Firms or All-Encompassing
"Virtual Countries"?

In 1994, the Sloan School of Management at MIT inaugurated a multi-year
research and education initiative called "Inventing the Organizations
of the 21st Century." One of the key activities for this
initiative has been developing a series of coherent scenarios
of possible future organizations. The scenarios are not intended
as predictions, but rather, as visions of potential alternative
ways of organizing work and structuring business enterprises in
the next century. This paper describes the results of the scenario
development activity to date and suggests directions for future
work.

Scenario planning begins with the assumption that the future ultimately
cannot be knowable with any certainty. Starting from this point,
scenario planners set out to think deeply about the various potential
futures which might emerge. The scenario process employs a range
of techniques-research, brainstorming, story telling-and
attempts to sketch a series of narrative accounts which delineate
the boundaries of what could conceivably occur going forward. [1]
Scenario planning was chosen as one of the key approaches for
the 21st Century Initiative, since it provides a structured methodology
for thinking about the environment in which future organizations
will operate and the likely form those organizations might take.

Scenario creation group

The Scenario Creation Group was comprised of thirteen members
of the MIT faculty and research staff (see list of members and
their affiliations in appendix), with Peter Schwartz of Global
Business Network, a consulting firm which specializes in scenario
planning, serving as facilitator. The Group held a series of discussions
between March and May of 1994 and framed an initial set of scenarios.
The focus was:

the world 20 years hence (approximately 2015),

future ways of organizing work,

issues likely to fall under the control of business enterprises,
with government policy considered primarily insofar as it might
affect business,

business around the world, not just in the U.S.,

effects of future organizational forms on both economic and
non-economic aspects of life, and on both individuals and society.

Review by faculty, corporate sponsors, and others

In early May 1994, these initial scenarios were the subject of
a half-day discussion held by a Scenario Review Group comprised
of ten additional Sloan faculty. Later that month, the scenarios
were presented to over 300 executives at an MIT Industrial Liaison
Program (ILP) symposium. Incorporating comments from the Review
Group and ILP symposium, a brief paper was drafted describing
the MIT scenarios and outlining the key issues they raised. [2]

The initial scenarios were discussed during the remainder of 1994
and 1995 in Sloan School classes and meetings with 21st Century
Initiative corporate sponsors [3]and others. For instance, they constituted
a substantial portion of the agenda for a CEO Roundtable jointly
sponsored by Sloan and Price Waterhouse in November 1994. [4]

In November 1995, Sloan and Global Business Network held a two-day
meeting of approximately 150 executives, academics and consultants.
The original MIT scenarios were used as the starting-off point
for wide-ranging discussions on "Organizations of the 21st
Century." GBN prepared a summary of the thinking which emerged
in this meeting and published it as Twenty-First Century Organizations:
Four Plausible Prospects. [5]

Most recently, a spring 1996 Sloan faculty seminar series addressed
a number of issues of relevance to the initial MIT scenarios [6];
the MIT scenarios were discussed at a joint working session on
21st century organizations sponsored by Siemens Nixdorf, BMW,
and Deutsche Bank in May 1996; and several scenario workshop sessions
were conducted during the June and October 1996 meetings of 21st
Century Initiative sponsors.

Throughout its scenario development activities, the Scenario Working
Group considered a wide variety of possible driving forces, major
uncertainties, and logics that might shape 21st century organizations.
In the course of its discussions, the group judged five variables
as likely to be the most important in the future:

technology,

human aspirations (What will people in the future want? more
material goods? or will they devote a greater proportion of their
energies to the pursuit of non-material ends? ),

global economic, political, and physical environment,

complexity (Will the world continue to become ever more complex?
or will limits on the human capacities to absorb change lead to
a reaction against complexity?),

demographics (in particular, center of gravity of world population
and wealth shifting away from North America and Europe).

While many of these elements could be the basis for intriguing
scenarios, the Working Group chose to focus initially on one major
uncertainty which emerged repeatedly in the discussions: the size
of individual companies. Will organizations in the future
be much larger, much smaller, or not very different in size from
the organizations we know today? In order to stimulate "out
of the box" thinking, the group imagined two extremes on
this dimension: very small companies and very large companies.

Thus, the first scenario focuses on how work might be organized
in ever-shifting networks of small firms and individual contractors;
the second focuses on how work might be organized in huge, long-lasting
and all-encompassing holding companies. These two scenarios are
called "Small Companies, Large Networks" and "Virtual
Countries," respectively.

Even though these two scenarios were originally conceived of as
extremes on the dimension of company size, it is also possible
to think of them as extremes on the dimension of organizational
longevity. The small companies in the first scenario can
participate in very large, temporary networks of thousands of
people. But these temporary organizations (or "virtual companies")
may only exist for a few weeks, days, or hours until the project
that brings the network together is completed. The large "virtual
countries," on the other hand, expect to last for decades
or even centuries while projects, people, and whole industries
come and go within their boundaries.

The corporation of the late twentieth century was just a transitional
form. [7] It lasted more than one hundred years, but few corporations
of that kind remain today. Now, looking back at the "dinosaur"
era in which General Motors, Microsoft, and Sony stalked the earth,
we are most aware of the tiny "mammals"-entertainment
production companies, construction project teams, and consultant
work-groups-which operated without much public notice back
in the 1990s, only to become the prototypes of today's
modern organization.

Today, nearly every task is performed by autonomous teams of one
to ten people, set up as independent contractors or small firms,
linked by networks, coming together in temporary combinations
for various projects, and dissolving once the work is done. When
a project needs to be undertaken, requests for proposal are issued
or jobs to be done are advertised, candidate firms respond, sub-contractors
are selected, and workers are hired largely on an ad-hoc basis

Consider the design of automobiles [8]: In a typical project, a variety
of independent firms form competing coalitions, to explore alternative
designs for the electric system, the chassis, or the task of putting
the car's subsystems together. Some of these firms are
joint ventures; some share equity; some are built around electronic
markets that set prices and wages. All are autonomous and self-organizing.
All depend on the ubiquitous, high-bandwidth, transaction-heavy
electronic network that connects them to each other. A highly-developed
venture capital infrastructure identifies promising teams and
provides financing.

Authority is still evident, but not through commands. A small
"Chevrolet/Saturn" central company still has senior
people who exercise their judgment by choosing where to invest
their R&D, marketing, and production capital. But groups also
try wild-eyed ideas that turn out to be very successful-and
financially rewarding for their participants. For instance, one
team of four people created a factory for nano-engineering individualized
lighting systems for each car's grille. They bucked conventional
wisdom when they built it, and all became millionaires in the
process.

Even though this way of organizing work is extremely well-suited
to rapid innovation and dynamically changing markets, the world
would be a lonely and unsatisfying place if all our interactions
were contractual. Therefore, we are all fortunate to have independent
organizations for social networking, learning, reputation-building,
and income smoothing. These communities evolved from professional
societies, college alumni associations, unions, fraternities,
clubs, neighborhoods, families, and churches. Many are similar
to the writers' and actors' guilds of Hollywood.
They help us save for retirement, and most of us pay a percentage
of our income to our "guilds" as a voluntary form
of unemployment insurance. It is here that we learn and update
the skills of our professions, and share war stories and reputations.
Perhaps most importantly, we derive much of our sense of identity
and belonging from these stable communities that we call "home"
as temporary projects come and go.

There are two key elements of this scenario: the fluid networks
for organizing tasks and the more stable communities to which
people belong as they move from project to project. Part of the
analysis and development of the scenarios has involved collecting
examples of current or historical organizations that embody aspects
of the scenarios. [9] These examples can help provide a concrete sense
what the future organizations might be like and some of the issues
they may face. Consider, for instance, the following examples
of organizations today that embody aspects of the first scenario.

Shifting task networks

The film industry. The film industry may stand as an early
adopter of new organizational forms. During the studio era of
the 1920s through 1940s, for example, the industry was organized
much like the vertically-integrated, mass production enterprises
established in the manufacturing sector during the late nineteenth
and early twentieth century. With the decline of the studios in
the 1950s, however, came the arrival of a new system, in which
the large entertainment conglomerates' role was reduced to finance
and distribution, and responsibility for production shifted to
a number of small firms organized on an ad hoc basis. On large
projects in the film industry today, hundreds or even thousands
of individuals and small entities each contribute their part to
the completion of a multi-million dollar production. During the
post-studio period, the power of the talent agencies, which played
an important role as deal brokers, increased significantly. With
the recent growth in the number and importance of films produced
independently with private capital, and the fragmentation of the
distribution system to accommodate this new type of picture, the
industry may be entering yet another new stage. [10]

Textile production in the Prato region of Italy. Another
example is the Menichetti textile enterprise, in the Prato region
of Italy. In the early 1970s, Massimo Menichetti inherited his
family's business, a failing textile mill. Menichetti quickly
broke up the firm into eight separate companies. He sold a significant
portion of equity-between one-third and one-half-to
key employees and required that at least 50 percent of the new
companies' sales come from customers outside the old firm. Within
three years, the eight new businesses had accomplished a complete
turnaround, achieving significant increases in machine utilization
and productivity.

The Menichetti pattern was replicated at numerous other integrated
mills in Prato, and by 1990, over 15,000 small textile firms,
each with an average of fewer than 5 employees, were active in
the region. This constituted a threefold increase in activity
from the previous decade, during a time when the textile industry
was in decline throughout the rest of Europe. The Prato firms
have built state-of-the-art factories and warehouses, and developed
cooperative ventures in realms such as purchasing, logistics,
and R&D, where scale economies could be exploited. Textiles
from the region have become the preferred material for remowned
fashion designers around the world.

Key actors in the Prato scheme are brokers, known as impannatori,
who act as conduit between customers and the small manufacturing
concerns. They effectively direct the design and manufacturing
process by bringing together the appropriate groups of firms to
meet customers' specific needs. By the late 1980s, the impannatori
had even created an electronic market, which gathered data on
projected factory utilization and upcoming requirements, and allowed
textile production capacity to be traded like a commodity. [11]

Semco. Another firm which has followed a course of radical
decentralization is Semco, a Brazilian manufacturer of marine
and food-service equipment. By the late 1980s, Semco was already
an innovative firm, run on the principles of employee participation,
profit sharing, and open information systems. But Semco was forced
to try even more radical innovations in 1990, when the Brazilian
finance ministry instituted severe austerity measures and effectively
reduced the nation's money supply by 80 percent overnight. To
survive the resulting crisis, management developed the idea of
encouraging employees to form satellite enterprises which used
company facilities, with Semco providing an initial contract to
get the new ventures going and offering severance packages and
training to assist employees in making the transition. The scheme
allowed the parent company to cut payroll and inventory costs,
and at the same time work with suppliers who knew Semco's business
intimately.

The entrepreneurial energy unleashed in the satellite firms has
been a major additional advantage for Semco. In 1990, the parent
firm had 500 employees; four years later it had 200, with the
satellites employing the same number and 50-60 more working part-time
for both Semco and one of the satellites. But by 1994, the satellites
were accounting for two-thirds of the new products Semco launched.
The experiment created a more free-wheeling, experimental culture
within the entire organization, the result being that the majority
owner of the firm, Ricardo Semler writes-with pride-that
"no one in the company really knows how many people we employ."
The lack of direction from management and the ad hoc, seemingly
chaotic environment has only enhanced morale and performance in
both the core company and the satellites. [12]

Radical outsourcing in producing athletic shoes, computer displays,
and software. Another current phenomenon which bears a striking
resemblance to the Small Companies/Large Networks scenario is
the radical outsourcing being undertaken by some manufacturing
firms. The outsourcing practices of the athletic shoe company
Nike, which subcontracts manufacturing, shipping, and distribution,
keeping only the design and marketing functions in-house, is widely
known and has been emulated by competitors such as Puma.

Another striking example of radical outsourcing is the U.S. personal
computer display division of the Finish firm, Nokia. The division
accounted for sales of over $150 million in 1995 and has only
five employees. A series of small, local entities serve as Nokia's
sales representatives and interact directly with customers; technical
support is subcontracted to a firm in North Carolina; logistics
are the responsibility of two companies, one on the East and one
on the West coast; and advertising and corporate communications
are handled by specialists located in Silicon Valley.

First Virtual Corporation is a recent technology start-up which
touts its radical outsourcing practices in its name. FVC assumes
responsibility for only two functions itself: developing technology
and negotiating agreements with marketing partners to sell its
products. Manufacturing and accounting are outsourced, and the
marketing partners offer product support. The company is on pace
to register revenues of $50 million in 1996. Its 35 employees
work in a one-room office where no one has a title, not even FVC's
founder. [13]

Stable communities

The second major element of the Small Companies/Large Networks
scenario is that existing or new organizations will step in to
meet the "life maintenance" requirements-the need
for health insurance, protection against unemployment and income
fluctuation, professional development, and a sense of belonging
and community-of those who work in networked organizations.
In the developed world these needs are now largely met by some
combination of corporations and the state-with the more
of the burden carried by employers in the United States and Japan,
more by governments in Western Europe.

The Small Companies/Large Networks scenario posits that these
life maintenance needs will be met by a variety of other organizations,
some of which are currently playing a part in one or another of
these areas. The leading candidates for assuming these roles include:
professional societies, unions, universities, alumni associations,
churches [14], political parties, service clubs, fraternal orders,
neighborhoods, and families/clans. There may also be opportunities
for entrepreneurs to create new kinds of organizations to fill
some or all of these life maintenance needs. Another possibility
envisioned by the Scenario Working Group was that collections
of families and individuals might pool their resources and form
semi-communal living arrangements to fulfill non-economic needs
and mitigate the potential harshness of a solely market-driven
work environment. [15]

The "life maintenance" organizations of this scenario
might look very much like the guilds of pre-industrial times or
labor unions of the early years of the industrial revolution. [16]
Instead of fulfilling an almost exclusively economic function,
like present-day unions, organizations of this sort could, in
addition to providing for material needs, also become a locus
for social, educational, and recreational activities.

One potential current model might be the guilds and unions which
serve workers in the film industry. Because screen actors and
writers, as well as the technicians who staff film crews, can
frequently obtain work only on a sporadic basis, the labor organizations
which serve these groups are set up to accommodate the periodic
nature of employment in the industry. For example, members of
the Screen Actor's Guild need only earn $6000 in a calendar year
to qualify for full health benefits for the entire subsequent
year. In recognition of the short shelf-life of many actor's careers,
the Guild also provides very generous pension benefits. SAG offers
a large number of educational and professional development seminars
to its members as well. In order to pay for these services, Guild
contracts stipulate that producers employing SAG actors must pay
a large surcharge, which amounts to as much as 30 percent of base
pay, into the Guild's benefits fund.

The creation of economically viable "life maintenance"
organizations in a future networked economy will likely require
workers to place a significant percentage of their earnings into
funds to cover health and unemployment insurance, as well as training
and professional development services. The widespread popularity
of 401K and IRA accounts indicate that fewer and fewer American
workers are counting on the company pension or government social
security payments to finance for their retirements and instead
are relying on their own, self-managed plans. The "life maintenance"
organization concept assumes that the employer's role as primary
provider of health coverage, unemployment insurance, and professional
training and development will similarly shrink. In order to attain
the same real standard of living, however, workers will need to
be able to charge a premium when they contract their services
in the open market, similar to the surcharge on actor's salaries
that the SAG is able to extract in its collective bargaining agreements
with producers.

The huge global conglomerate has emerged as the dominant way of
organizing work. [18] These keiretsu-style alliances, each with
operating companies in almost every industry, have minimal national
allegiance. Members of the same family work for Sony/Microsoft
or General Electric/Toyota, and feel little loyalty to the United
States or Japan. It would be considered disloyal and unusual for
members of the same family to work at competing keiretsu.
The alliances meet all our needs on a cradle-to-grave basis by
providing income and job security, health care, education, social
networking, and a sense of self-identity. Our organizations are
as powerful and influential as nations, and we owe allegiance
to them. They have no dominion over our land, but they control
our much more significant assets-access to knowledge, the
networks, and our livelihood. They even wage war on each other-using
lawyers instead of armies, valiantly protecting the trademarks
of our company.

These days, if you want to define me, you can ignore my geographic
location; I can be stereotyped according to the company I work
for, in whose service I expect to retire. My friends and family
members from around the world all work for the same organization.
Occasionally, although I work for Shell/Daewoo, I must ride a
nonaligned airline, and I run across someone from Exxushita. We
always converse, full of curiosity, but guarded-taking advantage
of a rare opportunity to see ourselves as others see us.

Employees own the firms in which they work, through pension plans,
stock options, employee participation contracts, and other vehicles.
And just as the modern nation states ultimately turned to democracy,
many of the corporations of the twenty-first century have moved
to representative governance. Our firm is one-employee-shareholders
have the right to elect the management of the company, not just
the board of directors, but managers at almost every level throughout
the organization. Decisions are made hierarchically, but every
year, on election day, we choose from slates of managers who vow
to do the best job for the company as a whole. Since our livelihoods
depend on the choice, nearly all of us take advantage of the keiretsu's
"open-books" financial reports, which provide a constantly-updated
overview of the business's priorities and assets.

Some people think of this system aspaternalistic and bureaucratic.
But actually, there is very little "fat" in the system.
Nepotism, ossified command structures, and sinecures don't
last long, since everyone benefits from improved performance.
Specialist "organization designers" travel through
the massive alliances, brokering partnerships and helping make
sure that people communicate effectively across boundaries. All
of us tend to get along, because our companies attract people
who agree with the prevailing attitudes. We all know the "Shell/Daewoo
way," and we live and die according to it.

The Virtual Countries scenario has four major elements:

large vertically- and horizontally-integrated firms;

pervasive role of firms in employees' lives;

employee ownership of firms;

employee selection of firm management.

Large vertically- and horizontally-integrated
firms

The second MIT scenario posits a world economy dominated by large
conglomerates which operate globally across a number of industries.
As with the present-day Asian keiretsu arrangement, there
will be a small number of core firms-large holding companies
which sell products with widely recognized brand names-occupying
a position at the center of the economy. These companies in turn
will have a series of permanent or semi-permanent relationships
with various smaller supplier firms, which will stand at the periphery
of the system. The industry structure in most sectors will be
oligopolistic, with a small number of major competitors holding
dominant positions, and high entry barriers preventing upstarts
from challenging the hegemony of market leaders.

The huge conglomerates envisioned in the Virtual Countries scenario
could grow out of a continuation of the merger wave which has
swept through the global business environment in the mid-1990s.
The value of announced mergers involving U.S. firms totaled $519
billion in 1995 and $659 billion in 1996, by far surpassing the
$353 billion registered in 1988, the previous peak year. [19]Recent
mergers have been concentrated in industries affected by government
deregulation-telecommunications, broadcasting, financial
services, aviation, natural gas and electric utilities-or
where public policy has directly or indirectly encouraged consolidation,
as in the case of the aerospace and health care sectors. But the
globalization of markets has also driven some mergers-British
Telecom's acquisition of MCI is one example-and led to the
creation of numerous international joint ventures, such as American
Airlines' proposed agreement with British Airways.

Management theory of the last decade has emphasized the importance
of firms staying tightly focused and relying on their "core
competencies." This trend was largely a response to the conglomerate
craze of the 1960s and 1970s, when many large firms diversified
into areas entirely unrelated to their original businesses. In
the sectors with the greatest volume of recent mergers, the activity
has primarily involved the buying of competitors or diversification
into closely related areas. The result has been rapid consolidation
in a number of industries, often on a global scale. When a firm
sells off a business unit unconnected to its central activities
and buys an entity with a position in its core industry, the company
is effectively substituting scope for scale.

One interpretation of the widespread substitution of scope for
scale is that firms are responding to the increased competitive
pressures created by the arrival of truly global markets-by
this argument companies are refocusing because their competitors
will hurt them if they don't. Some observers believe that once
the consolidation of major industries on a world-wide basis has
run its course, and an oligopolistic industry structure returns,
unrelated diversification may once again appear attractive, and
a series of mergers could ensue to create a second generation
of conglomerates, this time on a global scale. Such a sequence
of events could serve as the means of forming the world-spanning
conglomerates of the Virtual Countries scenario.

Another critical factor which could drive the world toward a Virtual
Countries future would be the legal system's inability or unwillingness
to protect intellectual property. Should intellectual property
laws be weak or confusing, or enforcement of them lax or ineffective,
a greater degree of vertical integration may become a strategic
imperative for firms whose products have significant knowledge
content. Such an approach could become necessary because, in the
absence of legal safeguards, capturing the value inherent in a
piece of knowledge would require producing and selling a tangible
product which physically embodied that knowledge. Under such circumstances,
larger companies would be at an advantage, and there would be
strong incentives to prevent important knowledge from passing
outside the boundaries of the firm.

The management structure employed at the large conglomerates in
the Virtual Countries scenario could vary. In some cases, a traditional
hierarchy might be maintained, with tight top-to-bottom controls
in place to ensure that consistent performance was achieved at
operations located around the globe. Alternatively, the conglomerates
might be structured in a more decentralized manner, with arms-length
agreements and transfer pricing arrangements characterizing transactions
between operating divisions, and employees heavily incentivized
by performance-based compensation and promotion schemes. In this
scheme, the corporate headquarters would still play an important
role in establishing the organization's overall mission and shaping
its culture, and in facilitating collaboration between business
units where appropriate.

A current example of such an approach is the decentralized organizational
structure adopted in the last decade by such firms as Asea Brown
Boveri, General Electric, and Johnson and Johnson. In all three
instances, the traditional M-form structure was set aside, and
"focal units," consisting of between 200 and 500 employees,
were created to operate more or less as autonomous businesses.
A thin layer of corporate staff was retained, and the traditional
ownership structure, with a single publicly-traded corporation
serving as a sort of vast holding company for the entire agglomeration,
remained unchanged. [20]

Pervasive role of firm in employees' lives

In the Virtual Countries scenario, the conglomerates will assume
full responsibility for meeting the "life maintenance"
requirements of their employees. This will include first providing
for tangible economic needs, through such means as a guarantee
of lifetime employment, generous benefits packages, and retraining
in the event that economic or technological changes make employees'
skills obsolete. Affiliation with a large, respected company will
also help employees meet more intangible needs: it will confer
status and a sense of identity, and associating with colleagues
at company-sponsored activities and events will become the primary
social and recreational outlet of workers.

Employees will be expected to purchase goods and services only
from company-affiliated firms: they will fly the company airline,
purchase cars and appliances from company subsidiaries, subscribe
only to the company-affiliated Internet-telecommunications-entertainment
service. The keiretsu of Asia already exhibit some of the
these characteristics: one member of a 21st Century Initiative
sponsor discussion group told of an evening spent in Tokyo, where
a Japanese salaryman entertaining foreign business associates
showed them the list of company-approved products issued to all
employees-he then ordered the brand of beer produced by
his firm's subsidiary.

In the Virtual Countries scenario, ties to the company will extend
far into employees personal lives. Family members will tend to
work for the same company and attempts by young couples to marry
across company lines will meet with disapproval from parents and
co-workers, in the same way that marriages across racial, ethnic,
or religious lines are now discouraged in many parts of the world. [21]

By providing completely for employees' life maintenance needs,
the large firms will be assuming responsibility for many of the
"safety net" functions performed by government in the
Western European social democracies during the second half of
the 20th century. With private firms taking on this larger role
and also operating freely on a transnational basis, it is anticipated
that the authority of government and the scope of its activities
could be significantly reduced. In parts of world where one or
a handful of industries are dominant, private firms may literally
take on many of the former roles of the state, including the provision
of defense and police protection. Such circumstances would entail
the creation of a vastly expanded version of the company town,
with the emergence of the "company region" or even "company
country" as distinct possibilities.

Nationalism could well decline, as the allegiance citizens formerly
felt for their countries gets translated into employees' expanded
sense of loyalty to their companies. The notion of citizenship
itself would likely become substantially less important-companies
might begin issuing the equivalent of passports, allowing only
their employees, or approved guests, to travel to regions where
their facilities were located, much as a firms now issue badges
to staff and visitors to grant access to offices and factories.

Employee ownership /Employee selection of firm
management

The Virtual Countries scenario assumes that employees would hold
a controlling interest in the shares of most firms, either directly,
through straightforward equity holdings, or indirectly, through
employee pension funds. Another possibility envisioned in this
scenario is that employees would select their firm's management
themselves-either indirectly, through appointment of top
management by the pension fund's managers, or directly, through
employee elections of managers at all levels of the firm. [22]

The concept of employees holding significant stakes in their companies
and exerting control over selection of management is an extrapolation
from two recent mainstream trends. The first is the rising power
of institutional investors and their increasing willingness to
assert their will in matters of corporate governance. [23] The second
is the somewhat less prominent movement toward employee ownership
of companies. By year-end 1995, nearly 10,000 ESOPs were in existence
in the U.S., involving over 10 million employees. In most employee-owned
firms, however, management operates relatively autonomously, with
employees exerting limited control. The aggressive role taken
in 1996 by United Airlines employees in pushing for a new CEO
and blocking a proposed merger with USAir stands as a counterexample
in which employees were quite engaged and exerted significant
authority. [24]

A striking instance of employee ownership and selection of management
is found in the group of worker cooperatives operating in and
around the city of Mondrag-n in the Basque region of Spain.
The first cooperative in Mondrag-n was started in 1956 by
a group of five foundry workers inspired by the ideas of Jose
Mar'a Arizmendiarrieta, a Basque priest. By the late 1980s
there were nearly 100 worker cooperatives in and around Mondrag-n,
employing over 20,000. The cooperatives jointly support a bank
and technical institute. Employees elect members of a governing
council, which in turn selects the management of each enterprise.
A large percentage of profits from operations are split among
workers in proportion to their salaries, with employees able to
take the full amount from their profit-sharing accounts when they
leave their firms. [25]

Another model which combines employee ownership and election of
management is the partnership structure, common in professional
service firms. Most large law, consulting, investment banking
and accounting practices are organized in this way, with the partners
jointly owning the firm and also selecting the management team
which runs it. While employees below the partner level are excluded
from full participation, most are on a career track in which they
are eligible to be considered for partnership. Though it does
not involve all members of a company, the partnership nonetheless
stands as a successful model of broad ownership and self-management
within a firm. Selected features of the partnership approach could
be incorporated in the more inclusive, firm-wide employee ownership
and governance structures envisioned in the Virtual Countries
scenario.

Some members of the Working Group expressed skepticism about the
workability of employee election of management, voicing concerns
that electioneering and cronyism would flourish. Those who saw
such a practice as viable envisioned it as the extension of recent
efforts at some large firms to distribute responsibility and accountability
more widely throughout the organization. This line of thinking
was based on the assumption that greater involvement by employees
in decisions affecting their own work would grow into an interest
in selecting first the managers responsible for overseeing their
part of the organization, and eventually, top management of the
firm as a whole.

To assess the robustness of its thinking, one major question the
Working Group posed about the scenarios was: Are they feasible?
A primary determinant of feasibility is the likely economic viability
of the organizational forms the scenarios describe.

Questions about the underlying economics of business enterprises
touch on a series of profound and complex issues: Why do certain
firms grow large or stay small? What are the critical advantages
of size? Are these advantages inherent, or are they tied to conditions
unique to certain industries or certain stages of economic development?
Economists and business historians have long wrestled with these
questions. The fundamental insight behind much of their work has
been that while the same transaction can either be internalized
within a firm or take place through separate entities exchanging
in the marketplace, the arrangement which typically emerges under
a given set of circumstances is the one which results in the lowest
overall costs. [26]

Prior to 1850, even the largest business firms were comprised
of a few principal owners and their employees, with activities
for the most part confined to a circumscribed geographic region.
Products produced by these firms reached their eventual consumers
via a long series of market transactions among the various wholesalers,
jobbers, storekeepers and itinerant peddlers which comprised the
distribution channels.

In the last century, however, the large hierarchical corporation
emerged as the dominant organizational form in the most dynamic
sectors of the global economy, supplanting the predominantly market-based
exchange which characterized earlier periods. The large corporation
arose in the last half of the nineteenth century when the newly
completed railroad and telegraph systems allowed individual firms
to reach national and international markets and also effectively
manage the organizations required to operate on that basis. One
result was the development of new manufacturing processes which
took advantage of the greater scale of production and were significantly
more cost efficient than the prior, smaller scale methods of production. [27]

The first large corporations were organized into functional units,
and this structure was dubbed the unitary or U-form by students
of organizations. As large firms developed additional product
lines to take advantage of existing marketing networks and ensure
full utilization of their large investments in manufacturing facilities,
the U-form during the 1920s began to evolve into the multi-divisional,
or M-form structure. In the M-form structure, the corporation
was organized into discrete divisions, each responsible for a
separate set of product lines and each with its own functional
departments. The divisions were given considerable operating autonomy,
and top management's role consisted primarily of setting overall
strategy and allocating resources among the operating units. [28]

The M-form has been the primary structure employed by large firms
since the 1920s, but in recent years it has come to be seen by
many practicing managers and students of organizations as ill-adapted
to the environment of the 1980s and 1990s. Some believe this is
due to changes in business conditions-increasingly vigorous
global competition, rapid technological change, more demanding
expectations for short-term performance imposed by financial markets.
Other observers see the growing rigidities of the traditional
corporation as an outgrowth of tendencies inherent in the organizational
form from the outset; in this view, the movement toward a "corrupted
multidivisional structure" is an inevitable stage in the
development of the modern corporation. [29]

At the same time, the success of start-up firms and large companies
which have experimented with decentralization has resulted in
widespread recognition that a structure based on smaller entities
interacting in the marketplace exhibits certain key advantages-greater
flexibility and responsiveness to customers' requirements, closer
alignment between the incentives of firms and the individuals
working in them. Some students of organizations postulate that
advances in information technology will make external transactions
increasingly cost effective, as against internal transactions.
One possible result is that market-based trading between separate
firms will more and more be favored over processes which take
place exclusively within a firm's boundaries. [30]

The MIT scenarios consider the question of which will be more
competitive going forward-the scale and solidity of large
organizations heavily reliant on transactions carried out inside
the firm, or the flexibility and better alignment of individual
and organizational incentives possible when external transactions
are favored. The relative attractiveness of these alternatives
will be dependent on whether the myriad of factors which might
shape the future-information technology, intellectual property
laws, financial markets, the trade environment, and numerous others-in
sum favor internal or external transactions. The scenarios imagine
how the future might look if the extreme versions of these outcomes
would emerge.

The Small Companies/Large Networks scenario envisions a world
in which external transactions will be much cheaper and more efficient
than they are today; the result is expected to be an organizational
environment rich in external transactions, where the advantages
of speed and flexibility so overshadow those of scale that almost
no large, permanent organizations exist. The Virtual Countries
world, by contrast, is one in which the advantages of scale which
have driven the growth of large organizations in the past are
assumed to continue, and indeed, to be amplified significantly-so
much so that the number of external transactions will be quite
limited, with most of the value chain for the production of goods
and services retained inside the core firm and the family of suppliers
which will together make up the "extended enterprise"
of the large conglomerates.

The contrast between a future economic environment rich in external
transactions and one in which internal transactions are favored
can be seen in the accompanying table, which describes the likely
character of major business processes under both MIT scenarios.

Process

Scenario One: Small Companies/Large Network

External Transactions Favored

Scenario Two: Virtual Countries

Internal Transactions Favored

Product Devt

design undertaken by dedicated firms and individuals, with no fixed
organizational link between engineering team and manufacturer

design and manufacturing controlled by same organization, to ensure manufacturability and because uncertain intellectual
property regime allows full value to be extracted only via embodiment of design work in physical products

majority of investment capital obtained from retained earnings of large corporations

equity in firms closely held by ESOPs and employee pension funds, resulting in very limited public trading of shares

Coordination

networks operate without central direction or control; self-organizing
mechanisms (market transactions, standards) serve as primary means by which coordination achieved between various entities

widely accepted standards serve as "constitutional framework"[31] enabling efficient, low-cost transactions between variety of
entities working together on project basis

standards set by three means:

market leader

industry cooperation

emergence out of practice

Two primary alternatives:

traditional command-and-control hierarchy with management playing major role in setting strategic direction and allocating resources

decentralized "federation of companies" with many small, stand-alone business units operating with great autonomy; management establishes
mission and overall policies, facilitates collaboration and organizational learning

As a thought experiment, descriptions of these three
business processes were developed under each of the scenarios.
The objective of this exercise was to imagine how the two scenarios
would look, in concrete terms, from the perspective of business
processes as they might actually be carried out.

In the future, consumers will likely face an even more bewildering
array of product choices than at present and will seek ever more
effective mechanisms for determining the quality of the goods
and services they purchase. The Virtual Countries scenario envisions
that this function will remain the province of large conglomerates,
with their well-established brands. In this world, consumers will
come to rely even more on brand names to provide assurances of
quality and reliability. The large conglomerates' R&D labs
will bring a constant stream of new products to market and their
legal staffs will protect those brands by taking aggressive action
against trademark and copyright infringement. Thus brands will
be an important competitive tool which will allow the conglomerates
to maintain their leadership positions.

But brands might also play a role in the Small Companies/Large
Networks scenario. Quality certification could emerge as one of
the critical positions that large corporations of today retain
in a networked world. In some instances, this step could stand
as their only contribution to the value chain, with firms simply
licensing their brands and certifying quality, and all design,
production, and distribution work being performed by other organizations.
Such a scheme is very close to the radical outsourcing practices
currently employed by Nike and its imitators in the athletic shoe
industry.

Another alternative is that brokers would play the critical role
in a networked world by serving as intermediaries between buyers
and sellers. The brokerage function might be performed by firms
providing customized shopping services, which would search for
appropriate products, check prices and ensure quality. Or the
same task could be accomplished by electronic means, through software
tools which would find products listed for sale on electronic
networks.

An even more advanced approach to brokering is collaborative filtering,
a method currently being pioneered by the start-up Internet company,
Firefly. Subscribers to this service enter a list of their likes
and dislikes for music, movies, or other entertainment products.
Firefly collects information from many subjects in a database,
and once the bank of preferences is sufficiently populated to
become robust, statistical analysis of aggregate preferences can
be used to recommend products to subscribers. If a new Firefly
member expresses a preference for music by Neil Young, for example,
and a large percentage of Neil Young fans in the database have
exhibited a liking for Sonic Youth, Firefly can recommend CD's
by the latter band to the new subscriber. [32]

The final extension of these trends would be a world in which
information was so prevalent and consumers' access to it so seamless
that there would be no need for brands or even for intermediary
entities to link sellers and buyers. Through filtering devices
and recommendations from affinity groups of which they were a
part, consumers could themselves ensure that they receive a steady
flow of information about products which might be of interest.
The "swarming" behavior which sophisticated computer
users exhibit when an interesting software application or game
appears-where word about the new product is passed almost
instantaneously to thousands of individuals via e-mail and bulletin
board posting-could serve as a model of how buying may occur
in an extremely information-rich future. [33]

At present, retained earnings remains the primary source of investment
capital for large corporations, with decisions about the use of
these funds made by company management. [34] The Virtual Country scenario
envisions this practice continuing, with employees themselves
or managers of employee pension funds exerting influence on management's
investment decisions as well.

The Small Companies/Large Networks scenario, by contrast, posits
sources of capital that would be fluid and flexible, with funds
coming from what has been referred to in some discussions as "retail"
capital markets. While individual investors might maintain the
bulk of their investment portfolio in a series of relatively conservative,
conventional instruments, a small portion of their funds could
be allocated for bets on more speculative ventures. These monies
could be invested in emerging firms in the networked economy on
an incremental basis, in very small sums, even a few dollars at
a time. Investment decisions could be made either via intermediaries,
who would take the time to discern the most attractive opportunities
and notify potential investors for a commission or fee, or through
the "swarming" behavior characteristic of extremely
information-rich environments. If even a small fraction of middle-class
investment funds were made available to emerging network ventures
on a widespread, "retail" basis, it would constitute
a huge pool of investment capital.

Participants in a recent 21st Century Initiative scenario workshop
have noted several critical pieces which would have to be in place
prior to the emergence of retail capital markets. One is electronic
cash, or e-cash, which could allow micro-transactions over networks
involving small sums, even fractions of a cent. Several e-cash
systems are under development for Internet transactions, and a
number of large financial institutions are currently running trials
of retail e-cash systems in Europe and North America. [35]

The other critical component for the emergence of retail capital
markets is the development of electronic exchanges for buying
and selling of shares in ventures with overall valuations and
trading volume too low to allow for economical usage of the traditional
securities underwriters. One embryonic development which might
eventually lead to mechanisms for such trading is the recent rise
of Internet-mediated "ideas markets."

The Iowa Electronic Markets offers subscribers the opportunity
to buy and sell contracts for small sums (users must deposit between
$5 and $500 to activate trading accounts) on the outcome of such
events as the Presidential election. The trading price thus stands
as a kind of surrogate opinion poll; for example, the price for
a contract on Bill Clinton being re-elected to a second term,
due to pay $1 after the election, was priced at approximately
55 cents in June 1996. At that time, the Presidential futures
market had over 6000 traders and a capitalization of $165,000.
IEM also offered contracts on the 1996 Russian presidential election,
on vote share in the U.S. Presidential race, and on which party
would control the House and Senate after the Congressional elections.
In addition, IEM serves as an electronic clearinghouse for trading
in more conventional contracts based on such financial benchmarks
as the future price of Microsoft stock or value of the S&P
500 index. Changes in prices are posted effectively in real time,
with updates every 15 seconds.

Ideas Futures (known by the acronym IF), an electronic exchange
originated by the Alberta Research Council, operates in a similar
fashion, except that trading takes places with virtual money and
a much more extensive and speculative list of topics is considered.
IF's primary focus is scientific issues and claims. For example,
one contract posted on the IF is based on the year in which a
human explorer will set foot on Mars. If the first Mars landing
occurs in 2010, the contract will pay $0.10; if it occurs in 2050,
$0.50; and so on. In the fall of 1996 the contract was priced
at $0.39. [36]

The extension of the ideas market concept to address small, project-based
ventures is quite a plausible prospect. An RFP could be posted
on an electronic bulletin board and information about the approach
and participants of the various teams could be included, allowing
potential brokers and investors to select the ventures they favored.
Prices of shares in the various teams would vary based on their
perceived prospects, with fluctuations posted as they occur.

Two U.S. firms are already providing Internet-based investment
banking services which could be the first steps toward eventual
trading in shares of ad-hoc, project-based ventures. Direct IPO,
headquartered near Los Angeles, brokers initial public stock offerings
over the World Wide Web. The company touts its service as an alternative
to early venture capital financing for technology start-ups. Direct
IPO claims that it can raise up to $5 million for new companies
on substantially better terms than those offered in the traditional
venture capital market: Direct IPO charges a $100,000 fee and
takes a 5 to 10 percent stake in its clients, as opposed to the
50 percent or greater stake that most venture capital firms would
demand. Wit Capital, based in New York City, was founded by an
entrepreneur after he successfully completed a $1.6 million initial
public offering for a micro-brewery over the Internet. Wit Capital
provides an initial public offering service to start-up firms
and a discount brokerage service to investors. The company eventually
intends to create an alternative to traditional venture capital
financing, by offering shares in early stage entities to retail
investors, with those shares trading from the outset on Wit Capital's
digital stock market. [37]

The Virtual Countries scenario envisions that management will
still play the primary role in setting the direction and coordinating
activities inside corporations. The Small Companies/Large Networks
scenario, by contrast, anticipates that there will be little or
no centralized control of the organization. Brokers might play
an entrepreneurial role initiating new projects, but the network
itself will operate on the basis of self-regulating principles,
with market transactions serving as the primary coordination mechanism.

An important enabler of such a networked world will be standards
which allow for easier and less expensive interactions between
potential collaborators. Standards in this sense would be widely
agreed-upon practices which allow for routinization of interactions
between potential cooperating parties. They might range from technical
specifications which define linkages between electronic systems
to long-ingrained patterns which come to be accepted as norms-what
might at present be referred to inside a firm as its culture or
within an industry as "the way things are done." In
between these extremes of hard-wired technical specs and the "softer"
realms of culture and convention might be standards which describe
work processes. Present day examples are the numerous quality
procedures which constitute ISO 9000 or the sequences of compatible
practices which allow for effective collaboration by a surgical
team hastily assembled from a group of doctors and nurses who
have never before met.

In a June 1996 discussion with young executives from the 21st
Century Initiative's sponsor firms, the networked auto industry
scenario was considered, and the group posited that a key enabler
would be a standardized protocol for new car designs. Such a protocol
would work by specifying that each component fit within an envelope
of a certain size and shape and interface with other systems in
specified ways. A headlight designer, for example, would know
the exact space allocated for the light assembly, as well as the
nature of any connections to be made with the electrical and control
systems. [38] Another potential example raised in the same workshop
was an on-line manual which would outline work processes for headset/keyboard
operators at telephone banks, thereby facilitating recruitment
of new operators from anywhere in the world. The 21st Century
Initiative's Process Handbook project is undertaking the creation
of a comprehensive catalog of business processes, and specialized
portions of the Process Handbook might one day serve as the sort
of work process manual envisioned in the scenario workshop. [39]

How would the standards which might enable networked organizations
emerge? Over the last decade, economists have directed considerable
attention to the topic of standards, and their work describes
three ways in which standards and conventions typically come to
be accepted: they can be imposed by a market leader, usually the
first firm to seize a dominant position; negotiated by industry
associations or professional societies; or simply emerge out of
practice, with possible later codification by government or industry
authority. [40] Industry structure and the singular paths by which
technologies are developed in particular industries have great
influence on how standards emerge. The recent Intel-Microsoft
vs. Apple rivalry in the personal computer industry shows that
more than one standard can exist within a single industry, at
least in the short to medium term; the battle between Netscape
and Microsoft in the Web browser market shows that first-mover
advantages, while significant, may not ultimately prove decisive. [41]

Applying this framework to the auto industry standards hypothesized
above, one could envision a series of design protocols being developed
by one firm in an attempt to establish a leadership position in
that segment of the automobile industry value chain. The marketplace
of auto component designers would stand as the jury which would
determine the success or failure of such an effort. It is quite
possible to imagine Toyota, Ford, or one of the other major automobile
manufacturers aspiring to a role of this sort if the world were
to evolve toward the Small Companies/Large Networks scenario.
The recent trend in which auto manufacturers have granted greater
engineering responsibility to their subcontractors can be seen
as a step toward this possible future.

Automotive design protocols could also be developed cooperatively
via organizations whose membership includes a broad range of industry
participants, like the Society for Automotive Engineers. A more
general process manual-the 21st Century Initiative's Process
Handbook is one example-could also be a mechanism for sharing
widely accepted standards.

Finally, auto design protocols which could enable a networked
organizational form might emerge out of simple practice as well.
For example, as concurrent engineering and virtual supply chains
become more common, global CAD/CAM networks-which must accommodate
real time design work by team members anywhere in the world-might
serve as the starting off point from which network-enabling design
protocols could eventually develop.

The second major question posed by the Working Group about its
scenarios was: Are they desirable? Perspectives on the desirability
of one scenario over another are likely to vary significantly
by region and culture, and from individual to individual.

Autonomy vs. Community

The Small Companies/Large Networks scenario portrays a world with
a myriad of choice. Work for many will be project-based, with
free-lance independent contractors able to bid for new assignments
based on their circumstances and preferences, and flexible schedules
and telecommuting the rule.

In the social realm, there would exist a wide range of organizations
providing for a variety of needs-casual interaction, education,
recreation, professional development, and health care and insurance
protection. People would be free to become members of those organizations
which best fit their personal requirements, and as a result, many
might voluntarily join a variety of groups, none of which would
be exclusively tied to their work. In the best case, these organizations
might assume some of the characteristics of the voluntary associations
described by Alexis de Tocqueville in his description of nineteenth-century
American society. Social organizations of this sort have long
formed the backbone of what political scientists term "civil
society," an entity whose decline has recently been much
lamented by students of American politics. [42]

Despite these positive aspects, the Small Companies/Large Networks
world would also have its costs. Life spent as independent contractor
could be perilous. There would be a continual need to find work,
as well as the likelihood of significant down time between assignments.
Some members of the MIT Scenario Working Group expressed concern
that employees at networked firms and free-lancing individuals
might be required to invest so much of their effort searching
for assignments that they would be able to devote only a fraction
of the time a designer or engineer currently employed by a large
firm spends working on creating actual products.

There also were concerns expressed about social isolation and
the potential lack of a sense of belonging to a larger community.
Some members of the group feared that in the absence of mediating
social institutions, a networked economy could lead to a Hobbesian
future, where life could be solitary, nasty, brutish-and
in the U.S., if there were no reasonable provisions for free-lance
workers to obtain health coverage-short.

In the end, the desirability of the Small Companies/Large Networks
scenario will likely depend on whether existing or new organizations
can take on the "life maintenance" role currently played
by corporations and governments in providing economic security
and fulfilling the function the large firm serves as a nexus for
social interaction and professional development.

The future set out in the Virtual Countries scenario, where people's
fate is so closely tied to large organizations, is likely to be
viewed with dismay where autonomy and choice are highly valued.
But individual freedom is prized most highly in the U.S.; in many
parts of the world, security and community are valued more highly.
In Asia, for example, where Confucian ethics still have a strong
hold and the extended family retains significant influence, many
might view the virtual country scenario as an attractive prospect.
And one could envision a Virtual Countries future gaining approval
from Western Europeans as well, if, through some process of privatization,
the conglomerates took over many of the major functions of the
current welfare state.

If the Tocquevillian description of voluntary associations stands
as a historical analogy to the Small Companies/Large Networks
scenario, post-independence Singapore may stand as a cognate for
the Virtual Countries world. Whether one prefers the rough and
tumble of the nineteenth century American frontier or the tightly
planned and controlled prosperity of Singapore stands largely
as a matter of cultural and personal preference. And the preference
could well change over time-a continuation of the turmoil
brought about by layoffs and downsizing in the U.S. economy could
make a more paternalistic scenario begin to appear attractive
to Americans.

Haves vs. Have Nots

Another major concern expressed by members of the Scenario Working
Group was the prospect of a sharp division of society into haves
and have nots. In the Small Companies scenario, the have nots
would consist of members of society who lacked the skills to plug
into the electronic network or those who preferred secure employment
and the prospect of not having to bid continually for work. As
part of the scenario, it was posited that jobs might be created,
either by government or private firms, in fields like elder care,
which would attract people with these preferences. But there remains
the strong prospect that many workers with these inclinations
would remain well outside the networked mainstream. The Small
Companies/Large Networks scenario might also work to exaggerate
already existing tendencies toward polarization of income and
wealth in society as a whole and winner-take-all outcomes in particular
industries and professions.

The Virtual Countries scenario will have its set of have nots,
but the excluded groups may have a different composition than
those which will appear in the Small Companies world. In a Virtual
Countries future, those unable to secure employment at one of
the core global conglomerates would likely face significant difficulties.
The government safety net will in all probability be smaller,
or even non-existent, and employees of the big conglomerates will
tend to work and socialize almost exclusively together. Life could
be harsh and isolating for the unemployed.

And even those working at firms which are part of the conglomerates'
extended supply chain may not receive the generous benefits or
employment security enjoyed by members of the core firms, because
companies on the periphery of the system will be unlikely to have
the means to provide such amenities. This distinction between
the status of employees at the core firms and those at the peripheral
suppliers is already a feature of the Asian keiretsu arrangement.

Finally, another possibility raised by members of the Scenario
Working Group was that the global conglomerates would keep a small
core staff on a permanent basis and fill any other positions with
temporary employees from a large pool of contingent workers. Some
large U.S. firms are already showing signs of moving toward this
sort of hiring strategy.

In addition to elaborating the current scenarios and exploring
their implications for different industries, future work could
also include consideration of other driving forces. Forces which
might serve as the basis for additional scenarios include:

political regime: major role for nation-state and international
organizations vs. lesser role,

values: narrow vs. broad self-interest,

social context of work: collaborative and cooperative vs. individualized
and competitive,

The scenarios project represents a primary forum within the 21st
Century Initiative for MIT faculty and researchers to reflect
upon how the organizations of the future might work. The scenarios
team hopes to provide a space in which structured, informed speculation
about possibilities for the future can occur. While it is impossible
to know how much influence such speculation might have on the
course of events, the hope is that this work will allow the choices
which shape the future to be made in a more thoughtful and considered
manner.

1On the history and methods of scenario planning, see Pierre
Wack, "Scenarios: Uncharted Waters Ahead," Harvard Business Review, 63,
no. 5 (September-October 1985), 72-79 and "Scenarios: Shooting the Rapids,"
Harvard Business Review, 63, no. 6 (November-December 1985), 139-150;
Arie P. de Gues, "Planning as Learning," Harvard Business Review, 66,
no. 2 (March-April 1988), 70-74; and Peter Schwartz, The Art of the Long
View: Planning for the Future in an Uncertain World (New York: Doubleday
Currency, 1991). Art Kleiner, "Consequential Heresies: How 'Thinking the
Unthinkable' Changed Royal Dutch Shell," in Global Business Network,
Scenario Thinking: Concepts and Approaches (Emeryville, Cal.: GBN,
1996) gives a brief history of the rise of scenario planning at Shell and its
continuation by many of the Shell practitioners through their work at Global
Business Network.

5Art Kleiner, Twenty-First Century Organizations: Four Plausible
Prospects (Emeryville, Cal.: Global Business Network, 1996). The
scenarios which emerged from the GBN meeting took the critical variable
examined in the original MIT scenarios--firm size--and also incorporated the
question of values--whether future organizations would be based on what was
termed "narrow" vs. "broad" self interest.

7The indented description of this scenario is excerpted and adapted from the
report of the GBN/MIT WorldView Meeting, held in November 1995. Kleiner,
Twenty-First Century Organizations, 5-6.

8An early version of the automobile industry scenario is set out in Thomas W.
Malone, "Scenario: Information Technology and the Workplace," presented at
Aspen Institute Roundtable on Information Technology, August 4-8, 1993.

9The 21st Century Initiative's "Interesting Organizations" database has
information on over 200 companies now employing innovative practices which the
Initiative's research staff judge could become more common in the future. For
more information on the database, consult the 21st Century Initiative's Web
site at http://ccs.mit.edu/21c/ioabout.html or contact Andrea Meyer, the
Interesting Organizations database Project Manager, at
meyerwk@workingknowledge.com.

10On the studio era, see Thomas Schatz, The Genius of the System:
Hollywood Filmmaking in the Studio Era (New York: Pantheon, 1988) and
David Bordwell, Janet Staiger and Kristen Thompson, The Classical Hollywood
Cinema: Film Style and Mode of Production to 1960 (New York: Columbia
University Press, 1985). Jon Lewis, "Whom God Wishes to Destroy--": Francis
Coppola and the New Hollywood (Durham: Duke University Press, 1985) gives
a concise history of the industry's evolution in the post-studio era. John
Pierson's Spike, Mike, Slackers and Dykes : A Guided Tour Across a
Decade of American Independent Cinema (New York: Miramax/Hyperion, 1996)
is a first-person account of the rise of independently-produced films over the
last decade.

12Ricardo Semler's two articles, "Why My Former Employees Still Work for Me,"
Harvard Business Review, 72, no. 1 (January-February 1995), 64-74 and
"Managing Without Managers," Harvard Business Review, 67, no. 5
(September-October 1989), 76-84 recount in detail the development of Semco.

13The Nike/Puma and Nokia outsourcing stories are recounted in Voss, "Virtual
Organizations," 14. First Virtual's practices are described in Tim Jackson,
"Virtual Corporation with a Twist," Financial Times, February 5, 1996,
9.

14An interesting picture of the expanded role being assumed by "mega-churches"
in contemporary suburban America is provided by Charles Truehart in "The Next
Church," Atlantic Monthly, 278, no. 2 (August 1996), 37-58.

15Sloan faculty member Maureen Scully created a series of vignettes dramatizing
the possible fate of several character types--authoritarian CEO, "enlightened"
senior manager, engineer, vocational trainer, unemployed inner city
resident--under the two MIT scenarios, and these were presented, with the parts
played by professional actors, at the MIT Industrial Liaison Program Symposium
in May 1994. Maureen Scully, "Scenario Scripts, or 10 Characters in Search of
a Future."

16The literature on unions and other organizations created by the industrial
working class is vast. Two classic works addressing the early years of the
industrial era are E. P. Thompson, Making of the English Working Class
(New York: Pantheon, 1964) and Eric Foner, Free Soil, Free Labor, Free Men:
The Ideology of the Republican Party before the Civil War (New York:
Oxford University Press, 1970).

17The term "virtual countries" was brought to the attention of the MIT Scenario
Working Group by executives at National Westminster Bank, one of the 21st
Century Initiative's founding sponsors. The term is used inside NatWest to
refer to an organization which now possesses or might in the future attain some
of the important characteristics of a nation-state. The European Community,
for example, is referred to as a "virtual country" within NatWest. The NatWest
usage is thus somewhat broader and more general than the quite specific meaning
applied to the term in the MIT scenarios.

18The indented description of this scenario is excerpted and adapted from the
report of the GBN/MIT WorldView Meeting, held in November 1995. Kleiner,
Twenty-First Century Organizations, 6-7.

19Farrell Kramer, "Mergers Roared Ahead in 1996, Set Records," Boston
Globe, January 2, 1997, E1-E2. This article was based on information
prepared by Securities Data Company. Securities Data collects information on a
global basis concerning merger and acquisition activity, joint ventures and
partnerships, and venture funding. For more on Securities Data, see their web
site at http://www.secdata.com.

20William Taylor, "The Logic of Global Business: An Interview with ABB's Percy
Bavenick," Harvard Business Review, 69, no. 2 (March-April 1991), 91-105
discusses ABB's practices. The 21st Century Initiative's Interesting
Organizations database has entries on GE and Johnson & Johnson; on the
database, see http://ccs.mit.edu/21c/ioabout.html. Christopher Bartlett and
Sumantra Ghoshal, "Beyond the M-Form: Toward a Managerial Theory of the Firm,"
Journal of Strategic Management, 14, Special Issue (Winter 1993), 23-46
suggests that the innovative organizational forms put into place in recent
years at ABB and a handful of other firms--GE, 3M, Toyota, Canon--may represent
a new paradigm which will replace the multidivisional M-form structure which
has been the dominant model for large corporations for the last half-century.

21This notion of a taboo against marriage between employees of different firms
was featured by the science fiction writer William Gibson in his futuristic
novel Neuromancer (New York: Ace, 1984).

22The idea of employee election of managers was explored in detail by Bruce
Sterling in his science fiction novel, Islands in the Net (New York:
Ace, 1989).

23A recent work on the growing influence of institutional investors is Michael
Useem, Investor Capitalism: How Money Managers are Changing the Face of
Corporate America (New York: Basic Books, 1996). John Keefe, "Directing
the Directors," Wall Street Journal, August 7, 1996, A10 is a review of
Useem. Another testament to the increasing assertiveness of employee pension
fund managers is a piece by the general counsel of CALPERS, the California
Public Employees Retirement System, contending that the pension funds' longer
investment horizons will eventually prevail over the short termism which has
resulting in the "hollowing out" of many U.S. companies in the 1990s. See
Richard H. Koppes, "And in the Long Run We Should Win," New York Times,
May 19, 1996, F13.

24The web site of the National Center for Employee Ownership offers a wealth of
information on ESOPs. See http://www.nceo.org.

25William Foote Whyte and Kathleen King Whyte, Making Mondragón: The
Growth and Dynamics of the Worker Cooperative Complex, Cornell
International Industrial and Labor Relations Report Number 14, 2nd edition
(Ithaca, NY: ILR Press, 1991) gives an account of the rise and development of
the Mondragón cooperatives. Henk Thomas and Chris Logan,
Mondragón: An Economic Analysis (London: George Allen &
Unwin, 1982) examines the economic performance of the cooperatives.

26The seminal work on this subject in the field of economics is Ronald Coase,
"The Nature of the Firm," Econometrica, 4 (1937), 386-405. Oliver
Williamson, Markets and Hierarchies: Analysis and Antitrust
Implications (New York: Free Press, 1975) is an influential recent
contribution. A good review of the economics literature is Bengt R. Holmstrom
and Jean Tirole, "Theory of the Firm" in Richard Schmalensee and Robert D.
Willig, Handbook of Industrial Organization, vol. 1 (Amsterdam:
Elsevier, 1989), 61-133. Though he approaches the problem from a very
different starting point, the business historian Alfred Chandler attributes the
rise of the modern corporation largely to the "internalization"--for the
purpose of achieving economies of various sorts--within large firms of
functions formerly performed by small firms transacting in arms-length fashion
in the marketplace; see Alfred D. Chandler, Jr., The Visible Hand: The
Managerial Revolution in American Business, (Cambridge, Mass.:
Belknap/Harvard University Press, 1977).

27As an example, Chandler notes that Standard Oil, the first large-scale
producer of kerosene, reduced its production costs by 80 percent after
consolidating production in three massive facilities during the 1880s. Even
more dramatic gains were made by the leading German chemical firms between 1870
and the mid-1880s, when they were able to exploit economies of scope and
produce hundreds of chemicals and dyes in one facility, reducing production
costs by as much as 95 percent. Chandler, "Organizational Capabilities and the
Economic History of the Industrial Enterprise," Journal of Economic
Perspectives, 6, no. 3 (Summer 1992), 79-100.

28The terms U-form and M-form were coined by Williamson; see Markets and
Hierarchies, 132-154. The rise of the U-form is recounted in Chandler,
Visible Hand and the M-form in Alfred D. Chandler, Jr., Strategy and
Structure: Chapters in the History of the Industrial Enterprise
(Cambridge, Mass.: MIT Press, 1962).

31The notion of "constitutional framework" is akin to Joseph Bower's ideas
about the role of top management at large corporations in "constitution
writing," that is, defining their firm's general structure and policies. See
Joseph L. Bower, Managing the Resource Allocation Process: A Study of
Corporate Planning and Investment, (Boston: Division or Research, Graduate
School of Business Administration, Harvard University, 1970), 2, cited in
Bartlett and Ghoshal, "Beyond the M-Form," 31.

35Brynjolfsson, "Doing Business on the Internet" and James Gleick, "Dead as a
Dollar," New York Times Magazine, June 16, 1996, 26-54.

36The two exchanges are discussed in Daniel Akst, "The Futures Look Bright for
Internet Market Sites," Los Angeles Times, June 3, 1996, D3. The Iowa
Electronic Markets at the University of Iowa College of Business Administration
can be accessed at http://www.biz.uiowa.edu/iem. The Alberta Research
Council's Idea Futures' initial site was http://if.arc.ab.ca, but in the fall
of 1996 responsibility for administering the exchange was assumed by a private
firm called Ideosphere. In the process, the site was renamed the Foresight
Exchange (FX). See http://www.ideosphere.com. The notion of
electronically-traded prices of shares in ad hoc joint ventures is also
examined in Malone, "Scenario: Information Technology and the Workplace."

37The Direct IPO and Wit Capital Web pages provide a full description of the
two companies' service offerings. For Direct IPO, see
http://www.directipo.com; for Wit Capital, see http://www.witcap.com.

38The concept of a "design protocol" is akin to Rebecca Henderson and Kim
Clark's notion of product "architecture," which they define as "the ways in
which the components are integrated and linked together into a coherent whole."
Henderson and Clark note that a dominant product architecture can presently
serve to shape the organizational capabilities of firms competing within an
industry; in the Small Companies scenario such organizational capabilities
would might be embedded not within firms, but rather, within the network of
small entities and independent contractors active in a particular field. See
Rebecca M. Henderson and Kim B. Clark, "Architectural Innovation: The
Reconfiguration of Existing Product Technologies and the Failure of Established
Firms," Administrative Science Quarterly, 35, no. 1 (March 1990), 9-30.

39On the Process Handbook, see the MIT Center for Coordination Science home
page at http://ccs.mit.edu.